Competition Law: A restraint of trade agreement that became a case of collusion

10 Jul 2018

PBM

RTS Industries, a company that makes and supply flat wire, augers and auger coiling machinery to the global poultry feeding market, has come full circle in its interaction with South Africa’s competition laws. Its now opted to cooperate with the Competition Commission’s prosecution in a story that starts with a restraint of trade battle between a driver of a new venture and his former employer, Technical Systems.

The story goes back to about 10 years ago. The owner of RTS was a Technical Systems employee. He resigned in 2009 and signed a three year restraint of trade agreement. Later in 2009, he formed RTS and started directly competing with Technical Systems, in breach of the restraint agreement.

In 2014, Technical Systems sued RTS and its owner, in his personal capacity, for breaching the 2009 restraint agreement. In June 2015, RTS reached a settlement agreement with Technical Systems before the Western Cape High Court in terms of which RTS is forever prohibited from entering the market.

An investigation by the Competition Commission found that the agreement runs in perpetuity and that RTS would never enter the market without approval by Technical Systems. RTS conceded to this arrangement on fear of endless litigation. This conduct is in contravention of the Competition Act.

The Commission has referred the two companies to the Competition Tribunal for prosecution. Technical Systems and CGC Industries trading as RTS Industries face charges relating to division of markets by allocating territories.

The case of RTS the Commission is not seeking a penalty. This is because RTS has applied for leniency in terms of which it ha promised to cooperate with the Commission in the prosecution of Technical Systems.